Matco Foods investing Rs1.4 billion to enter corn starch business

All in all, there are not that many publicly listed companies in Pakistan. Some global context: In the 1990s, there were some 8,000 companies listed on NASDAQ and the New York Stock Exchange (NYSE); today, that number is hovering around 6,000. In India, there are roughly 5,500 publicly listed companies. Meanwhile, in good old developing Pakistan, there are only 554 publicly listed companies on the Pakistan Stock Exchange (of which 123 sit on the defaulter list). 

By and large, most of these publicly listed companies are either textile companies, or of the sugar industry. Only 22 companies on the PSX are part of the ‘food and personal care’ sector: Mitchell’s, Engro Foods (now Frieslandcampins Engro), National Foods, and Murree Brewery, etc. But these are companies that produce processed food items; rarer still are commodity-oriented food companies. 

It is why we turn our attention to Matco Foods. Not only is it a commodity-oriented food company that is publicly listed, it has been unusually aggressive about expansion in recent months.

In a notice issued to the PSX on December 24, 2020, Matco Foods said that it was starting a new corn starch business in the Allama Iqbal Industrial Estate in Faisalabad. The total cost of this is to amount to Rs1,385 million. About Rs1,000 is for plant and machinery, mostly corn grinding machinery that can work through 200 tons of corn a day. Another Rs190 million is reserved for acquiring the land, which is around 20 acres, and another Rs195 million is reserved for civil works.

And where is the money for this expansion coming from? To gain some land, you have to sell some. First, Matco is going to get rid of 10 acres of land in Port Qasim in Karachi for some quick cash. Second, Matco is turning to the State Bank of Pakistan, and its new policies which encourage expansion. 

To recap: the regulator introduced the Temporary Economic Refinance Facility (TERF) on March 17, a concessionary refinance facility aimed at promoting investment in both new and expansion. After some amendments in May and July, the scheme now has a maximum loan limit of Rs5 billion, and a maximum end-user rate of 5% for 10 years.

Now, here is the catch: the validity of this scheme is only up until March 31, 2021. Thus, one can witness a flurry of activity in the loan space, with companies trying to quickly avail the opportunity before it disappears (expansion permissions can take up to five to six months to be approved, depending on the sector).  By the SBP’s own estimates, approved financing went from Rs 0.5 billion in April 2020 to Rs 222.7 billion in December 2020. 

When was the last time you heard a rice exporter want to use formal financing to this extent? But from Matco’s perspective, this is but a natural progression for the company. The company has been around since 1964 (proudly noted still, in the logo), when it was founded by Syed Sarfraz Ali Ghori (Ghori family members still hold more than 60% of the company).He got the new name from the abridged version of the mother company, M.A. Trading Company, apparently thinking that retaining the old name was a good omen.  In 1967, the company set up its first rice processing plant in Larkana, Sindh. 

Its global ambitions were apparent right from the beginning: in 1970, just three years after its first plant, the company began to supply rice to the Satake Group in Japan, which specialize in rice processing. It also provided machinery to the Government of Pakistan. In 1980, this relationship was further strengthened, when Matco became an agent for Satake in Pakistan. And that is how Matco got the ultimate pay-off, with the first fully automated, modern rice processing plant in Pakistan supplied by Satake in 1990 (by the way, to give a sense of just how behind in rice we have been, our leading rice company brought technology to Pakistan that Satake had invented in 1896 (and perfected over the years, winning awards from the government of Japan for contributions to science)). 

Backed by its Japanese friend, Matco gained confidence, and in 1999 shipped its first container of its own brand, Falak (grandiose choice, since it literally means Cosmos), and launched the brand formally in 2004. In 2000, it constructed its second plant in S.I.T.E in Karachi and added a fourth processing line in 2008. It added another plant in Gujranwala in 2010. In 2012, it became the only agro processing company in Pakistan in which the International Finance Corporation, which is a member of the World Bank, has invested, with a 15% share of the company. 

The Falak Brand is the company’s flagship brand (it also has two other brands of rice, Amber, and Bahar).It is Falak that is shipped and distributed to 40 different companies – there’s even organic brown rice made specifically for health conscious EU residents. Its brand ambassador is Mehboob Khan, better known as the beloved chef judge on MasterChef Pakistan. 

The year 2020 was, ironically enough, great for the company. According to the company’s annual report, Pakistan’s basmati rice exports grew by 35%, mostly because there’s been a surge in food products because of the pandemic (people are eating, cooking and stocking up more). India, which is the biggest exporter of basmati rice, was badly affected by the pandemic, which meant that Pakistan actually took over some of the basmati demand. The company had the highest sales in 2020, at Rs11,289 million, even though its profit stood at Rs152 million (in 2019 and 2018, profit stood at Rs414 million, and Rs308 million). 

The company has sometimes experimented: in 2016 it launched himalayan pink salt, for example. But by and large, it remains a ‘rice’ company, though it has wanted to move away from that label. In 2015, the company changed its name from Matco Rice Processing to Matco Foods, right before it listed on the PSX. Just in time for the new corn starch business.